Northeast Preps for Carbon Cap-and-Trade

Permits for America’s first carbon cap-and-trade scheme will go on the auction block on Thursday this week. The Regional Greenhouse Gas Initiative (RGGI) will auction permits for some 188 million tons of carbon emissions for 2009. At the start of the year, power plants in the 10 participating states will be required to buy a permit for every ton of carbon they emit, either through this auction or thereafter on the open market.

Traders started trading futures and options for RGGI (say “Reggie”) permits last month, but prices are expected to stay low. In this first year, regulators have issued permits for more emissions than are expected to be released, to ensure that industry wouldn’t get slammed by a sudden and sharp increase in regulatory fees. But analysts predict that prices will remain low for six years, making us wonder when exactly industry will actually be held accountable in a meaningful way for their carbon emissions.

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RGGI covers only emissions from power generation and sets the initial cap at 188 million tons per year in 2009 — more than 9 percent higher than emissions levels in 2007, according to a report from the consulting firm Environment Northeast. The goal is reduce emissions from power plants by 10 percent by 2019.

RGGI isn’t the only regional consortium of states to plan for a cap-and-trade system. The Western Climate Initiative, a group of seven states and four Canadian provinces, last month issued a draft of its proposed plan to institute a regional cap-and-trade system. The group’s proposal would have states start monitoring emissions in 2010 and reporting them in 2011 in preparation for a cap on carbon emissions starting in 2012. The WCI’s goal is to cut emissions 15 percent below 2005 levels by 2020.

A lot is riding on the success of RGGI. Federal legislators will be paying close attention to gauge whether a national cap-and-trade program would be feasible, an idea both presidential candidates support. A strong showing from a brand-new carbon market could galvanize public support for a federal system.